Ken Rogoff Interview

Doug Clement interviews Ken Rogoff. Rogoff says,

I've taught for years in my class that many types of money funds and asset classes outside the traditional regulatory system are subject to the same kind of runs as the conventional banking system. I have had my classes write papers about whether the government can credibly promise not to bail out money funds, and if it cannot, then should they be subject to more regulation? This is not a simple question, but researchers need to provide better answers.

Another point he makes is that it is characteristic of financial crises that governments spend a lot of money cleaning up the damage. Why is this the case? Some possibilities:

1. We don't call it a financial crisis unless there is a big clean-up. So, if we didn't do a big clean-up after the Dotcom crash, then it was not a crisis.

2. There is strong interdependence between government and the financial sector. See my 8th lecture on macroeconomics. This means that banks are bound to have political influence, and they are likely to be bailed out in a crisis.

3. It really is good public policy to bail out banks. You really do help Main Street by saving Wall Street.

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